Proposal: Enable aYFI and yYFI to Participate in Governance Voting

[franklin]

Summary:
Modify current governance voting infrastructure to enable aYFI and yYFI holders to participate in governance voting.

Abstract:
The current governance voting contract only accepts YFI to participate in voting. This proposal would allow aYFI and yYFI, which is YFI either deposited on AAVE or in the YFI yVault, to participate in governance voting. New governance voting contracts will be deployed, if necessary.

Motivation:
Long-term YFI holders may have deposited their YFI on AAVE or in the yVault. The current governance staking contract only allows YFI for voting. Therefore, YFI holders in AAVE and the yVault are unable to participate in voting without withdrawing tokens from AAVE and/or the yVault incurring unnecessary costs. These holders should not be excluded from the governance voting process if they intend to stay deposited in AAVE or the yVault.

Specification:
Enable aYFI and yYFI holders to participate in voting using their aYFI and/or yYFI tokens as a proxy for their YFI tokens.

For: Enable aYFI and yYFI holders to participate in governance voting.

Against: No changes.

UPD: Poll restarted as it allowed for double voting.

Ref: Governance, vaults, and yYFI

• For
• Against

[franklin]

Opening this up for discussion as a potential YIP. Also would like some more technical feedback if this is possible, or what would need to be done to change contracts to make it possible.

Another point that should be discussed is if all tokens should receive yCRV rewards, or only YFI.

[investrly]

If I just added my yfi to governance staking and paid the tx fee for voting dashboard and there are no voting proposals.

It is saying…You need to have voted recently in order to claim rewards

How do I make this happen?

[cavernec]

Just wait for the next YIP and vote. You’ll be able to claim your rewards after 3 days.

[Beepidibop]

I’m against this proposal.

The problem with allowing voting with aYFI is 1 unit of YFI would be able to vote twice in the same proposal.

1.YFI deposited in Aave, loaner gets aYFI
2. Borrower takes out a loan on Aave
3.YIP proposed
4. aYFI holder votes
5. Borrower uses the YFI they borrowed to vote

yYFI has the same potential depending on the vault strategy

This diminishes the voting power of YFI staked in governance. And takes control of regulating voting power out of the governance.

[boatonagoat]

There’s an extended discussion found here and elsewhere on the forums about letting people vote with YFI in vaults or elsewhere.

I’m against it because of:

1. The issues with accounting for double votes, as @Beepidibop mentions above.
2. This reduces the cost of taking riskier plays with YFI, which adds more risk to the overall protocol. I want to incentivize governance staking, so I think only having rewards go to those who are ensuring the safety of the protocol is fair.

[mattdw]

Agreed. Unless there is a way to resolve the double-vote issue, or even just the vote-inflation issue, this should not go through. There are ways to resolve this problem, but not as written.

[franklin]

The current infrastructure also allows for amplified voting, users can borrow YFI using something other than YFI as collateral and use it to vote. But I hear you on the double voting.

@mattdw Any thoughts on how to prevent double voting?

Still thinking on how the infrastructure could be revamped to potentially eliminate this issue. But Andre’s post above introduced the potential for a new wrapped token gYFI. Ignoring the aYFI token for a moment since that is susceptible to double voting, what if holders of YFI and yYFI deposited their tokens into a SC and received gYFI. This would then be used for voting.

Enables yYFI holders the ability to participate in voting without exiting the vault and incurring withdrawal fees.

[dudesahn]

As @Beepidibop said above, the main issue with allowing aYFI to vote has to do with double-voting. We would effectively be diluting the current voting power of every existing YFI holder. I am definitely against this.

Regarding the yYFI– I’m not sure if there will be any way to get around the dilution and double-voting either. To earn yield in the vault, the YFI has to be deposited somewhere– so that means either farming (like with CREAM) or depositing in Aave or another platform and then borrowing stablecoins against it. In either of these situations, there will likely be more YFI that can be borrowed and/or used by a third party– there just are unlikely to be any other ways to generate yield on it, at least that I can think of.

If someone is able to think of a strategy for the YFI vault that keeps the YFI safe from being borrowed out or re-deposited back for voting (and still generates yield), then that would at least eliminate the logistical hurdles.

I also have…ideological issues with a YFI vault at all. YFI is meant for governance, and realistically I think it should be used as so. We can’t do anything to control what other platforms might offer for users depositing their YFI (PASTA, YAM, etc), but I don’t like the idea of yearn incentivizing it being used in these ways.

However, I definitely agree that YFI holders will, for the most part, store their YFI wherever they get the greatest returns. For some, participating in governance is a high-yield reward itself. If we really want more users participating in governance, then I suggest again that perhaps we should think about increasing returns to YFI holders who stake and vote. Realistically, I think if we have a flat 5% performance fee on profits (discussed here), on top of the gas fees already being covered by profits, this should help increase returns. Maybe we increase withdrawal fee to 1%. I don’t have the answers on this last part– but I think it’s simple that if we want more to participate in governance, we need to decrease the opportunity cost of doing so.

Either way, I don’t think voting with anything other than YFI (or maybe gYFI, if we’re able to get that implemented) is a good idea.

[riedbomb]

I completely agree and am extremely against this, I don’t want to get granular but the whole purpose of being an owner of a YFI is for governance only.

As Andre stated it has 0 value, its for governance. I do not believe we should be looking at this through lenses of magnifying profits and greed. Let the system stay as it be it is perfect right now and their is no way we should be changing the current community. There’s even articles on this subject. There is no need to try to fix a system that is working as it was intend to be.

DeFi Forks Will Struggle Because You Can’t Fork a Community | Crypto Briefing

[vooncer]

I’m for this (this is Vance).

You can vote borrow YFI with any other asset and double vote as well. I suppose depositing it as collateral anywhere lowers the cost to do so, but it’s about a trade off between higher participation and lower game ability. Right now, we can’t vote in YFI without unwinding an aYFI position, which dramatically reduces our likelihood to participate in governance, and I know others are in the same position.

In my eyes, its a tradeoff between a (very) marginally more gameable voting schema and dramatically lower friction to vote for a lot of YFI holders.

[Whatanoob]

NO go for me, this not what the yearn token is intended for. It’s for governance only not maximizing your wealth. You’re already making enough money owning the token and voting.

[Beepidibop]

You can vote borrow YFI with any other asset and double vote as well.

I think we have different definitions of double vote here.

Anyone can buy YFI for a vote and sell it afterwards, but the supply of YFI is still 30k.
If aYFI is allowed to vote, the total voting power is no longer 30k, but some greater amount because the same token, not user, is counted twice.

Edit: Also, consider this. What happens if someone borrows YFI, put it into Aave again, borrows it out again, puts into Aave again, repeat ad infinitum. (1aYFI->2aYFI->4aYFI) They’ll pay for the interest, sure. But they can dilute the whole voting pool with no checks against them if this is allowed.

[dudesahn]

This is inherently different, though. If you vote with borrowed YFI, you are borrowing the YFI that someone else decided not to stake and vote with. If you allow aYFI (or other tokenized YFI) to vote, then there are definitively more potential votes in the world than existed before.

[Whatanoob]

There is also this… Why change anything, makes no sense Absolutely no reason to break a working system as stated above

yEarn Finance Is Turning Every DeFi Trader into a Whale | Crypto Briefing

[franklin]

What happens if someone borrows YFI, put it into Aave again, borrows it out again, puts into Aave again, repeat ad infinitum. (1aYFI->2aYFI->4aYFI)

It can’t be done ad infinitum, there is a liquidation eventually due to leverage and right now there is 6,000 YFI even available to be borrowed in AAVE. This represents 20% of the supply. Aave only allows a 40% LTV for YFI. Even if someone managed to borrow the entire Aave supply, don’t even want to think of the interest rate they would pay as the interest rate slides upwards, they would have to deposit 15,000 YFI as collateral. I suppose they could also deposit $335m in other assets to borrow all that YFI, but they still wouldn’t be at a majority.

I think the largest whales have maybe 800-1,200 YFI, one I think is a collective group of individuals rather than one person (yfi_whale). Conceivably they can double their voting power to 2,400 YFI? That still is nowhere near 50% majority.

@Whatanoob

Why change anything, makes no sense Absolutely no reason to break a working system as stated above

The system needs to adapt and change based on a constantly evolving market. When the governance model was initially conceived there was no ability to deposit YFI on AAVE there were no yVaults. The ecosystem and ultimately the governance model will need to adapt and evolve with the industry. Staying rigid and unwavering is likely to hurt the ecosystem long-term.

[Beepidibop]

@franklin

It can’t be done ad infinitum, there is a liquidation eventually due to leverage and right now

What happens when someone performs the following transactions:

1. Wallet A deposits 1 YFI on Aave, gets 1 aYFI
2. Wallet B borrows 1 YFI on Aave
3. Wallet B sends 1 YFI to Wallet A
4. Wallet A deposits 1 YFI on Aave, gets 1 aYFI
5. Wallet B borrows 1YFI on Aave
6. Wallets, A, B both vote on the same proposal, with the original 1 YFI counting 3 times. Which inflates the 30k fixed supply of YFI

Steps 1 to 3 can be repeated ad infinitum (doesn’t have to be the same person) and it only costs interest for the would be attacker.

The 6000 YFI on Aave right now has at most 6000 out of 30,000 worth of voting power. Allowing aYFI voting breaks the 30,000 limit.

Everytime a token is double counted on Aave, both the numerator and denominator increases by the same amount, 6000/30,000 ->1,006,000/1,030,000. Except now aYFI has most of the voting power and the original YFI holders have negligible power.

You could say, why don’t everyone stake on Aave then? But that raises another problem. This promotes vote buying with interest. Only people who can afford to constantly shell out money for interest will be able to borrow YFI to mint more aYFI. Which raises barrier of entry, resulting in centralization.

[Whatanoob]

100% the way you just explained it is awesome and just made me think about how much tethering has to be done to execute this…

Again what’s the point of this I don’t understand. Yeah maybe I’m not the sharpest person in the world and don’t understand this all just sounds so convoluted and a new form of vote farming.

Can someone explain to me how this is not a form of vote farming and I’d be happy to hear another convoluted answer for a system that isn’t broken.

I don’t understand the logic, is it to expand money and power on different platforms? That jus’t doesn’t make sense.

[Whatanoob]

I know of a few individuals that have over 50 or 100 yearn just sitting on the sidelines frozen and straight up locked away cause its a shitload of money.

I only know cause I’ve been here since day one and helped by answer basic questions on telegram back when the price was in the $2,000 range. One literally asked me what whale status was and I just made it up and told them 35 yearn, I don’t know man, its your’e money do what you want.

Looking back at it now it seems more ridiculous than thinking of it in todays mentality. They still reach out to me every now and then thanking me.

[captainobvious]

I am strongly against allowing for any form of yield income to be able to participate in governance. If you enable people to make governance decisions whilst also obtaining leverage outside the system, you create perverse incentives for malicious actors. If an attacker can obtain a return by collateralise their YFI that offsets the losses on should an adverse vote pass, it reduces the protocol resilience. This allows attackers to hedge the risk of YFI price failure and bypass the intended effect of the 3-day lockup.

YFI holders must have skin in the game and make a decision RE tradeoffs between collateralising or governance, not both.